Mario Piperni on the Minimum Wage

Would a $15 Minimum Wage Work?

“Reduce the debt!” We need to broaden the base (i.e more taxes on the 47%)!

“Reduce the size of government!”

Turn on any cable news network and that’s all you’ll hear.

And the only answers the politicians have are: raise more taxes and/or cut entitlements (not defense, of course) or both.

We hear the GOP wants to cut food stamps and other programs that help the poor. That something must be done with SS and Medicare because they’re going broke and Medicaid needs to be cut back, too, because we just don’t have the money. And the Democrats refuse to let these programs take a hit.

People are tired of paying taxes to help the “lazy 47% who don’t pay taxes, is the complaint.

The economy is too sluggish, it’s not growing!

So we’re in gridlock as usual with no answers that either side is willing to accept.

Is there an alternative? Maybe.

What if we could add $169,260,000,000 to the economy?

Add $25,389,000,000 to the treasury each year in the form of taxes (without increasing anyone’s taxes). Over 10 years, that’s $2.5 trillion add to the Treasury that could be earmarked to reduce the debt/deficit.

Reduce the costs of programs providing food stamps, housing vouchers, and the big one – Medicaid?

Collect $10,494.120,000 more annually in FICA premiums to shore up Social Security and Medicare. That’s over $1 trillion in 10 years, that would surely strengthen each of these programs for the coming years without making major changes in the program.

How, you ask?

Increase the minimum wage to $15.00.

Using 2010 numbers, the poverty level for 1 person under 65 was $11,344. That’s someone making $218.15 per week, or $5.45 an hour. The working poor receive assistance in the form of housing vouchers, food stamps, and Medicaid and pay little, if anything in the form of federal taxes.

Using the federal minimum wage in 2010 of $7.25 and the then number of working people making poverty level or less in wages of 10,500,000 you can extrapolate those numbers as follows:

10,500,000 x $7.25 per hour for 40 hours @ 52 weeks = $158,340,000,000 in wages annually. FICA at 6.2% for these workers would contribute $9,817.080.000 to SS/Medicare. Of course, some of these are part-time jobs, so this is merely an example. But for every person who can be removed from government assistance, that’s less tax dollars needed to support them.

And if you think a person flipping burgers doesn’t deserve $15 per hour, consider how much of your tax dollars are going to subsidize their wages so they can be paid $7.25 to flip those burgers. One way or the other, the consumer/tax payer is paying a considerable amount to get that burger flipped.

Now change the minimum wage to $15.00 per hour and extrapolate the numbers:

10,500,000 x 15.00 per hour 40 hours @ 52 weeks = $327,600,000,000 in wages annually. FICA would be a contribution of an additional $10,494,120,000. Over 10 years that would be over $1.4 Trillion.

With a 15% tax rate, those wages would contribute $25,389,000,000 annually in revenue to the Treasury and could be targeted to directly reduce the debt. Over 10 years that would be a $2.5 Trillion deduction, in addition to the reduced expenditures for food stamps, housing vouchers, and Medicaid.

Add an additional $169,260,000,000 increased purchasing power to the economy.

Increasing the minimum wage would also add to the treasuries of states in the form of sales tax, income tax, among other taxes these dollars would generate.

A two-person working household could generate $30 per hour providing them income to save and possibly purchase a home.

The counter-argument will be that increasing the minimum wage will reduce jobs. There are many studies that disprove that argument. There are several papers (links here) that refute that argument.

The other counter- argument will be that the cost of everything will go up and the jobs will move overseas.

First, these are service industry jobs…now 7 out of 10 in the U.S. – it’s going to be hard to ship them overseas. Are you going to order your burger from the McDonald’s in China and have it flown over to the pick up window? I think not. Nor is the Wal-Mart worker going to be shipped over there either so you can restock the shelves yourself.

As for the cost…two things to consider. Are you going to pay $15-30 for a McDonald’s Big-Mac? I think not.

Prices are determined based on the floor (the lowest price a seller can sell a product for) and the ceiling (the highest amount a consumer is willing to pay), and on competitor pricing.

And while the prices may go up — if the consumer is willing to pay and competitors are not competing — the consumer/taxpayer is already paying. If the end game allows your taxes to be reduced and you, the consumer, have the freedom to choose where you will make your purchases — based on competitive prices and your willingness to pay and the fact that you have more money to spend then haven’t we all won?

When you look at the trillions of dollars that are currently not being invested in our economy via our workers, but are sitting on the shelf waiting to invest…the only question I have is is – who better to invest in than the workers and our economy?

An interesting idea but my concerns would be the impact a $15 minimum wage would have on American competitiveness in global markets. Diana addresses this point.

Yes, that is an argument for manufacturing jobs – but most of those are gone already – some are coming back because, in part, the Chinese are demanding higher wages.

But the service industry jobs are what I’m referring to – they can’t take those overseas. And with so many of our jobs now in that category (7 out of 10) and these being the lowest paying jobs out there, it’s a place to begin.